Price of Diesel Fuel

At the local station with the lowest diesel price (Shell), the price of diesel today ($3.739) was lower than mid-grade ($3.799). First time I've seen that happen since I've been pumping diesel. Probably means a diesel spike is imminent.

There is no reason for expectation from ultimate consumer that retail price is tied to cost of production.

There is, with an understanding of basic economics. A producer selling a product profitably is an incentive to others to do likewise. If a producer is not successful at monopolizing a market, competitors will enter the market, and it they're able, offer a competing product at a competing price. If the competing products are, for most practical purposes, identical, competition between multiple producers will drive down product prices to the minimum they can be for the demand, supply, & cost factors of the industry. Those are the basic factors that determine price, in a market system based on a model of perfect competition. Seems to me it would be the rare consumer indeed who doesn't understand a product's price is determined by the cost of its production plus an amount of profit margin, the profit being whatever the market will bear.

And thank your lucky stars there's no government requirement otherwise.

Not quite sure what you're envisioning there - there are all kinds of ways governmental regulations, despite the best of intentions, can have unintended negative consequences and/or negative economic impacts. It would be a silly regulation for the government to require consumers to expect something that is already an economic reality, that being that defining one part of a product's price is its production cost. If you're suggesting to be thankful the government doesn't mandate a particular profit margin, that would imply you're suggesting a government mandated profit margin would not be economically efficient (ie, prices for things would be higher than they already are), and that there should not be government mandated constraint, allowing markets to function freely, allowing for supply to meet demand at the minimum possible price, including cost factors; and, if that's the case, that's contradictory with saying consumers shouldn't think that production costs make up part of a product's price. If a government mandate amounts to part of a product's cost and affects the price a producer must charge, then you're obviously not just expecting that a product's cost is part of its price, you're seeing it too.

A producer may _try_ to charge what it wants, but the existence of competition and the law of diminishing marginal returns will be determinants in a product's price.

There is, with an understanding of basic economics. A producer selling a product profitably is an incentive to others to do likewise. If a producer is not successful at monopolizing a market, competitors will enter the market, and it they're able, offer a competing product at a competing price. If the competing products are, for most practical purposes, identical, competition between multiple producers will drive down product prices to the minimum they can be for the demand, supply, & cost factors of the industry. Those are the basic factors that determine price, in a market system based on a model of perfect competition. Seems to me it would be the rare consumer indeed who doesn't understand a product's price is determined by the cost of its production plus an amount of profit margin, the profit being whatever the market will bear.

Not quite sure what you're envisioning there - there are all kinds of ways governmental regulations, despite the best of intentions, can have unintended negative consequences and/or negative economic impacts. It would be a silly regulation for the government to require consumers to expect something that is already an economic reality, that being that defining one part of a product's price is its production cost. If you're suggesting to be thankful the government doesn't mandate a particular profit margin, that would imply you're suggesting a government mandated profit margin would not be economically efficient (ie, prices for things would be higher than they already are), and that there should not be government mandated constraint, allowing markets to function freely, allowing for supply to meet demand at the minimum possible price, including cost factors; and, if that's the case, that's contradictory with saying consumers shouldn't think that production costs make up part of a product's price. If a government mandate amounts to part of a product's cost and affects the price a producer must charge, then you're obviously not just expecting that a product's cost is part of its price, you're seeing it too.

Pretty good analysis in my opinion, given that to completely explore the topic could fill volumes.

In the end, no one is going to produce any product/service that consistently sells for a price lower than the costs associated to produce it plus some amount of profit. So, in that regard, cost of production is directly related to price paid for the product or service.

Prices can be manipulated by monopolies, cartels, government, regulations, speculation, availability and demand, as well as an entire hosts of other things.

My understanding of the diesel prices are that diesel will tend to be higher circa the cold months, because the product is essentially the same as fuel oil that much of the Northeast uses for heating. It is also closely related to kerosene and jet fuel.

And, while it used to be true that diesel was less processed than "gasoline" (taken from lower in the cracking tower/process), today's diesel now requires more processing, refinement, and filtering to produce the ultra-low sulfur blend mandated by the feds.

IMO, the best tradeoff is going to be a diesel hybrid. Full electric cars for the general population, in quantity, would strain the electric grid and ultimately cost more to "fuel" the vehicle by virtue of the regulation and taxes imposed on the coal and gas-fired power plants.

Wind, solar, and ocean-based power production is still way too inefficient and expensive to be viable and will have far too much negative environmental impact to be practical.